2011 (9) TMI 771 - HC - Companies Law

Winding up of company - Official Liquidator took over the assets of the company in terms of the winding up order in December 2005 - In the year 2008 one of the secured creditors i.e. IFCI Ltd. filed Company Application No. 52 of 2008 seeking sale of the assets of the property so that these could be distributed amongst the secured creditors and if anything was left over be paid to the unsecured creditors - When there is a stipulation that a certain amount of money has to be deposited by way of earnest money then either that money has to be paid in cash or in tangible terms i.e demand draft - The Official Liquidator should have only opened the bids and declared the highest bidder. When the bids were opened M/s. Mahabali Balaji Tradex Private Limited increased its offer to Rs. 14, 52, 00, 000 - It is a well known fact that when properties are put to auction by the Court they are in the nature of distress sales and more often than not it is very difficult to realize the actual market value of the property in such distress sales - Held that the opening of the bids on 28th September 2011 shall be restricted to the Auction Purchaser and M/s. Mahabali Balaji Tradex Private Limited and no other person shall be permitted to take part in the bid - the Auction Purchaser or M/s. Mahabali Balaji Tradex Private Limited cannot be denied the interest on their deposits of Rs. 11.76 crores and Rs. 3 crores respectively because now they have to bid afresh and this interest portion is not being taken into consideration while calculating the bid amount - Appeals are disposed of

Issues Involved:
1. Winding up of M/s Him Ispat Ltd. and sale of its assets.
2. Valuation and sale process of the company's assets.
3. Confirmation of the highest bid and subsequent disputes.
4. Applications for higher bids and their validity.
5. Legal principles governing the confirmation and setting aside of auction sales.

Detailed Analysis:

1. Winding up of M/s Him Ispat Ltd. and sale of its assets:
The company, M/s Him Ispat Ltd., was ordered to be wound up by the High Court on 8th November 2001. The Official Liquidator took over the assets in December 2005. In 2008, IFCI Ltd., a secured creditor, sought the sale of the company's assets to distribute proceeds among creditors. The Company Judge ordered a meeting of secured creditors to determine the sale process, which was held on 27th January 2010.

2. Valuation and sale process of the company's assets:
A valuer, M/s. Prashar & Company, valued the company's assets, including land measuring 25 kanals and 6 marlas. The secured creditors proposed selling the assets in four lots: land & building, plant & machinery, fixed assets & scrap, and leased machinery, totaling Rs. 92.00 lacs. The Company Judge accepted the proposal on 19th October 2010, allowing the sale of assets either as individual lots or as a composite lot. An advertisement was issued for the sale of all four lots, and M/s. Valley Iron & Steel Company Limited emerged as the highest bidder with a bid of Rs. 11.70 crores.

3. Confirmation of the highest bid and subsequent disputes:
Shri Pradeep Chandra, a promoter and guarantor, filed an application challenging the sale, which was not listed until after the auction. The Auction Purchaser sought confirmation of the sale, and the Company Judge permitted the deposit of the balance sale consideration. It was later discovered that the company owned 51 kanals of land, not 25 kanals and 6 marlas. The Company Judge ordered the sale of the remaining land and allowed bids for the entire property, including the previously sold portion. The Auction Purchaser appealed, arguing that the property should not be resold after depositing Rs. 11.70 crores.

4. Applications for higher bids and their validity:
Multiple applications were filed by parties willing to submit higher bids. M/s. Flat Steels Private Limited's application was rejected due to late submission. M/s. Symcom Impex Private Limited's application was rejected for lack of explanation for late submission. M/s. Pramaki Finvest Private Limited's bid was the highest but was rejected due to the submission of a photocopy of the demand draft instead of the original. The court upheld the rejection, emphasizing that earnest money must be tangible and a photocopy is insufficient. Applications by M/s. Deepak Goyal & Company were also rejected as they had not submitted any bid.

5. Legal principles governing the confirmation and setting aside of auction sales:
The court examined several precedents, including Navalkha & Sons v. Sri Ramanya Das, which established that confirmation of sales is subject to the court's discretion to ensure the price is reasonable. Divya Mfg. Co. (P.) Ltd. v. Union Bank of India held that even a confirmed sale could be set aside in the interests of creditors and public interest. Valji Khimji & Company v. Official Liquidator emphasized that confirmed sales are generally final unless fraud is involved. The court also considered Shradhha Aromatics (P.) Ltd. v. Official Liquidator, where a confirmed sale was set aside due to a significantly higher subsequent offer.

Conclusion:
The court directed a fresh bidding process between the Auction Purchaser and M/s. Mahabali Balaji Tradex Private Limited, considering the higher offers received. The Auction Purchaser was given a buffer of Rs. 30 lacs over the highest bid to compensate for the initial deposit. The court emphasized the need to maximize recovery for the benefit of creditors and public interest. The appeals were disposed of with directions for the new bidding process to be conducted in court.

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